New Developments in Seeking United States Discovery for Foreign Proceedings and International Arbitration

In 1964, the United States Congress passed a law providing that a United States district court "'may order' a person residing or found in the district to give testimony or produce documents 'for use in a proceeding in a foreign or international tribunal . . . upon the application of any interested person.'"[1] While this law (Section 1782) is now more than 55 years old, within the past two years, appellate courts in the United States have embraced decisions which significantly expand its application and allow parties to foreign legal proceedings and international arbitration to seek discovery from anyone within the jurisdiction of the United States, even if the documents or evidence are themselves outside of the United States. This Insight examines the effect of these recent decisions and potential issues for the Supreme Court to resolve.

First, two United States Courts of Appeal have held—in September 2019 and March 2020—that Section 1782 permits taking discovery for use in private commercial arbitrations. In both the Abdul Latif Jameel and Servotronics cases, the appellate courts determined that a private international arbitration panel constitutes a "foreign or international tribunal" under Section 1782.[2] These are the first appellate decisions to allow discovery in aid of private international commercial arbitrations.

In another groundbreaking decision, on October 7, 2019, the United States Court of Appeals for the Second Circuit issued a decision in In re del Valle Ruiz that significantly expanded the ability of parties to foreign legal proceedings to obtain discovery from United States courts.[3] The Second Circuit reached two key conclusions that work to expand the reach of discovery by American courts: first, that the reach of Section 1782 applies to the full limit of constitutional due process, and second, that there is no bar on the ability of U.S. courts to order the production of documents outside of the United States under Section 1782. Overall, these recent decisions may indicate a broader willingness of United States courts to assist parties and arbitral tribunals with discovery of parties and non-parties in the United States.

Discovery in Aid of International Commercial Arbitration

In the Abdul Latif Jameel case, FedEx International entered into two agreements with Abdul Latif Jameel (ALJ), a Saudi corporation, for delivery services in Saudi Arabia. The relationship between FedEx International and ALJ deteriorated, and eventually ALJ commenced arbitration proceedings against FedEx International in both Dubai and Saudi Arabia.[4] In the course of the arbitration, ALJ filed an application under Section 1782 in the United States District Court for the Western District of Tennessee, seeking discovery from FedEx Corp.—FedEx International's parent corporation—related to the negotiation of the agreements between FedEx International and ALJ. The District Court denied ALJ's application, finding that the arbitral panels were not "tribunals" within the meaning of Section 1782.[5]

The Sixth Circuit reversed the district court. After examining the dictionary definitions of tribunal, the use of tribunal in legal writings, other uses of the word tribunal in the statute, and the U.S. Supreme Court's 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the Appeals Court held that international arbitral panels are "tribunals" under Section 1782.[6]

In the Servotronics case, Servotronics supplied a part for a Rolls-Royse engine installed on a Boeing 787 Dreamliner aircraft. When the part malfunctioned causing a fire and damage to the aircraft, Rolls-Royce settled with Boeing and initiated an arbitration seated in England to seek indemnity from Servotronics for the damage. Servotronics filed an application under Section 1782 seeking testimony from three Boeing employees involved in the fire. The district court denied the application, stating that a private arbitral panel is not a "tribunal."[7]

The Fourth Circuit reversed the district court and followed much of the same reasoning as the Abdul Latif Jameel case to determine that the arbitral panel is a "tribunal" under Section 1782. It also determined that under the UK Arbitration Act of 1996, the English arbitration panel was acting with "government-conferred authority" and so should be treated similarly to any other foreign legal proceeding.[8]

These two decisions are the first appellate decisions to provide for discovery under Section 1782 to private international arbitral panels, and conflict with two older cases that rejected the use of Section 1782 to provide discovery for private arbitral panels.[9] Both of those cases, however, predate the Supreme Court's guidance in Intel expanding the applicability of Section 1782. Ultimately, the Supreme Court may have to weigh in—and Rolls-Royce has asked the Supreme Court to take up the Servotronics case—but for now, the recent trend is for courts to allow Section 1782 to apply to private international arbitrations. 

Discovery Outside the United States

In the In re del Valle Ruiz case, the Second Circuit addressed two key questions concerning discovery under Section 1782. Banco Popular Español, S.A. (BPE) was Spain's sixth-largest bank, but had struggled with toxic and nonperforming assets since the 2008 financial crisis. Santander, another Spanish bank, retained New York-based UBS and Citibank to advise on a contemplated bid. BPE, however, suffered a run on its deposits, and the Spanish government invited several banks to submit bids to purchase BPE; Santander submitted the only bid and successfully purchased BPE for €1 (a single euro).[10]

BPE's investors suffered significant financial loses, and a group of them (Petitioners) sued to challenge the sale before the Court of Justice of the European Union. In the United States, Petitioners filed an application under Section 1782 seeking discovery from Santander, as well as Santander Investment Securities, Inc. (SIS), a New York affiliate of Santander, relating to the forced sale of BPE. Santander argued that it was not "found" in New York within the meaning of Section 1782 and that Section 1782 does not apply to documents or witnesses located overseas.[11]

The Second Circuit's first conclusion was that the phrase "resides in or is found" applies to the full extent of constitutional due process. That is, Section 1782 applies if the Court has either general jurisdiction—because a party is "at home" in the jurisdiction, i.e., incorporated there or with its principal place of business there—or specific jurisdiction over the party from whom discovery is sought. 

Since the petition was seeking discovery from a non-party, the Second Circuit adopted a new specific jurisdiction test for purposes of Section 1782: "where the discovery material sought proximately resulted from the respondent's forum contacts, that would be sufficient to establish specific jurisdiction for ordering discovery. . . . [W]here the respondent's contacts are broader and more significant, a petitioner need demonstrate only that the evidence sought would not be available but for the respondent's forum contacts."[12]

In this case, the Petitioners sought evidence regarding the government-forced sale of BPE. But the only forum contacts by Santander predating this sale had been for purposes of due diligence of a prior bid. The Second Circuit concluded that because the BPE investors' claims arose from the government-forced sale, the materials sought did not proximately arise from Santander's contacts with UBS and Citibank investigating a potential earlier purchase of BPE.[13] The Second Circuit thus determined that it lacked jurisdiction over Santander and refused to order documents from that company. 

Having determined that discovery would not be allowed from Santander, the Second Circuit next considered discovery from SIS—Santander's U.S. subsidiary—over which the Second Circuit undisputedly had general jurisdiction. Santander insisted that SIS should not be ordered to produce discovery located outside of the United States because Section 1782 should not apply extraterritorially. 

The Second Circuit rejected this argument and held that there is no per se bar on obtaining discovery outside of the United States through Section 1782. In doing so, the Second Circuit followed an Eleventh Circuit ruling from 2016[14] which held that because Section 1782 authorizes discovery pursuant to the Federal Rules of Civil Procedure, which in turn authorize extraterritorial discovery of any documents within the subpoenaed party's possession, custody, or control, Section 1782 by its plain language allows for extraterritorial discovery.[15]

In making this determination, the Second Circuit noted in a footnote that earlier dicta, a contemporaneous senate report, and an article by one of Section 1782's "principal drafters"—the late Professor Hans Smit—had all rejected application of Section 1782 to extraterritorial documents.[16] Indeed, Professor Smit observed that if such extraterritorial application was allowed, "American courts would become clearing houses for requests for information from courts and litigants all over the world in search of evidence to be obtained all over the world."[17] But the Second Circuit determined that "given the plain meaning of the statute," "these considerations are insufficient to win the day."[18]

Much Falls to the Court's Discretion

These cases expand the applicability of Section 1782 and place much more emphasis upon the trial court's discretion. This discretion largely focuses on the Intel factors developed by the Supreme Court, including (1) whether the respondent is a party in the foreign litigation (in which case there may be less need for discovery), (2) whether the foreign proceeding would be receptive to the evidence, (3) whether the request is an attempt to circumvent restrictions on discovery, and (4) whether the request is unduly intrusive or burdensome.[19] Ultimately, because the trial court's discretion is reviewed solely for "abuse of discretion,"[20] trial courts will have broad latitude in ordering discovery in aid of foreign proceedings.

Conclusion

Taken together, these cases show a willingness by courts to open United States discovery to new contexts such as international arbitration and to cover any company in the United States or where the information resulted from contacts in the United States. The only limit for such discovery may be the broad discretion of U.S. district courts. 

Ultimately, this decision may place U.S. companies doing business overseas at a disadvantage in foreign proceedings. If a U.S. company or its foreign subsidiary is engaged in a foreign lawsuit or arbitration, Section 1782 may allow for discovery of their world-wide documents. And given that discovery is generally much more limited in foreign proceedings and arbitrations than in U.S. courts, it may be far easier to get such documents ordered by a U.S. court.

About the Authors: Jared Hubbard is a Partner at Fitch Law Partners, LLP where his practice focuses on international disputes, including both international commercial arbitration and investor-state arbitration. Malgorzata Mrózek is an Associate at Fitch Law Partners, LLP where her practice focuses on commercial litigation and international commercial arbitration.